Cuban military expands its economic empire under detente

The Associated Press

A poster of the Habaguanex company is seen in Old Havana, Cuba, Thursday, Sept. 8, 2016. The largest business arm of the City Historian’s Office, Habaguanex, named for a pre-Columbian indigenous chief, directly runs some 20 hotels and 30 stores and more than 25 restaurants in Old Havana. Last month, the Cuban military took over the business operations of the City Historian’s Office, including Habaguanex. (AP Photo/Desmond Boylan)

A poster of the Habaguanex company is seen in Old Havana, Cuba, Thursday, Sept. 8, 2016. The largest business arm of the City Historian’s Office, Habaguanex, named for a pre-Columbian indigenous chief, directly runs some 20 hotels and 30 stores and more than 25 restaurants in Old Havana. Last month, the Cuban military took over the business operations of the City Historian’s Office, including Habaguanex. (AP Photo/Desmond Boylan) (The Associated Press)

ANDREA RODRIGUEZ Associated Press

HAVANA (AP) — At the height of Cuba's post-Soviet economic crisis, a man with the obscure title of city historian began transforming Havana's crumbling historic center block by block, polishing stone facades, replacing broken stained glass and repairing potholed streets.

Over a quarter century, Eusebio Leal turned Old Havana into a painstakingly restored colonial jewel, a tourist draw that brings in more than $170 million a year, according to the most recent available figures. His office became a center of power with unprecedented budgetary freedom from the island's communist central government.

That independence is gone. Last month, the Cuban military took over the business operations of Leal's City Historian's Office, absorbing them into a business empire that has grown dramatically since the declaration of detente between the U.S. and Cuba on Dec. 17, 2014.

The military's long-standing business wing, GAESA, assumed a higher profile after Gen. Raul Castro became president in 2008, positioning the armed forces as perhaps the prime beneficiary of a post-detente boom in tourism. Gaviota, the military's tourism arm, is in the midst of a hotel building spree that outpaces projects under control of nominally civilian agencies like the Ministry of Tourism. The military-run Mariel port west of Havana has seen double-digit growth fueled largely by demand in the tourism sector. The armed forces this year took over the bank that does business with foreign companies, assuming control of most of Cuba's day-to-day international financial transactions, according to a bank official.

"GAESA is wisely investing in the more international — and more lucrative — segments of the Cuban economy. This gives the military technocrats a strong stake in a more outwardly oriented and internationally competitive Cuba deeply integrated into global markets," said Richard Feinberg, author of "Open for Business: The New Cuban Economy."

Castro has never publicly explained his reasoning for giving so much economic power to the military, but the armed forces are widely seen in Cuba as efficient, fast-moving and relatively unscathed by the low-level payoffs and pilferage that plague so much of the government. Economic disruption also is viewed as a crucial national security issue while the government slowly loosens its once-total hold on economic activity and renews ties with its former Cold War enemy 90 miles to the north.

While U.S. President Barack Obama has said detente was meant partly to help ordinary Cubans develop economic independence from a centrally planned government that employs most of the island's workers, the Cuban government says the U.S. should expect no change in Cuba because of normalization with the U.S.

The takeover of Old Havana shows how the Cuban government is, so far, successfully steering much of the peace dividend into military coffers.

The announcement nearly two years ago that the U.S. and Cuba were restoring diplomatic relations set off a tourism boom with Old Havana at its epicenter. The cobblestone streets are packed with tourists browsing souvenir stands, visiting museums and dining in trendy private restaurants. World figures and celebrities from Madonna to Mick Jagger to Pope Francis and Obama have all visited. Hotels are booked well through next year.

The largest business arm of the historian's office, Habaguanex, named for a pre-Columbian indigenous chief, directly runs some 20 hotels and 30 stores and more than 25 restaurants in Old Havana.

Under a special exemption by the ruling Council of State, the office has been allowed to use its revenues as it sees fit rather than returning them to the national treasury and receiving a yearly budget allocation from the central government. That 1993 measure is widely credited for giving Leal the power and flexibility to restore Old Havana to international standards while much of the rest of Havana suffers from neglect that has left buildings collapsing and streets rutted with big potholes.

A towering figure in Cuba's intellectual and political life, Leal, who turns 74 on Sept. 11, is often chosen to deliver meditations on Cuban history and culture at major public events. He has never groomed an obvious successor. He has appeared frail and thin in some recent public appearances and close associates say he has been receiving treatment for a serious illness.

"I'm giving up everything that I think should be, under current conditions, better directed," Leal told The Associated Press when asked about the military takeover of his financial operations. "There's a reality. I was trained and educated to work in cultural heritage, and that's my calling."

Through its economic wing, the blandly named Business Administration Group, the Cuban armed forces have become the nation's biggest retailer, importer and hotelier. The military corporation Cimex, created two decades ago, counts retail stories, auto-rental businesses and even a recording studio among its holdings. The military retail chain TRD has hundreds of shops across Cuba that sell everything from soap to home electronics at prices often several times those in nearby countries. Gaviota has 62 hotels with 26,752 rooms across Cuba, pulling in some $700 million a year from more than 40 percent of the tourists who visit Cuba.

Cuba welcomed more than 3 million tourists last year, a nearly 20 percent rise over 2014.

"It's obvious that the military has an economic power far beyond what's needed for its national-security responsibilities," said Arturo Lopez-Levy, a political science lecturer at the University of Texas-Rio Grande Valley.

The Cuban government did not respond to a request for comment on the military's business operations.

The Business Administration Group, known by its Spanish acronym GAESA, formally took over the city historian's office on Aug. 1, according to three employees with the office who spoke on condition of anonymity because they were not authorized to talk with the press.

"They're going to carve everything up and it'll be absorbed by military businesses that are already operating. The hotels go to Gaviota, the restaurants to Cimex and the stores to TRD," said one of the officials.

Going forward, the historian's office will be responsible only for cultural projects and will retain only the proceeds of museum entry fees and souvenir stores, officials told the AP.

"They're going to impose discipline and probably it'll function better that way," said another official in the business wing of the historian's office. "It will affect those of us on the business side, but I don't think it will affect cultural projects. The Cuban military isn't stupid."